Preliminary results of the U.S. Census Bureau’s 2002 Survey of Business Owners show that the number of Black-owned businesses is growing at more than four times the rate of all businesses in the United States. However, the rate of revenue increases at these businesses hardly matches that growth. The number of Black-owned firms increased 45 percent between 1997 and 2002, but their receipts increased only 31 percent. Comparatively, the period saw a 10 percent increase in the total number of U.S. firms, but that 10 percent generated a 22 percent increase in receipts. Clearly there is still a long way to go before parity is reached in terms of revenue generation.
Why the Revenue Lag?
Lack of access to sufficient working capital probably is the main reason why minority businesses fail early and are not generating new net revenues proportional to those generated by the overall business population. This can explain why minority businesses are more heavily concentrated in the service industries: There are fewer financial barriers to entry. A recent Boston Consulting Group study found minority businesses are overrepresented in six traditionally low-growth sectors, accounting for about 30 percent of all employment opportunities created by MBEs.
The Boston Consulting Group report pointed out that operating innovatively and radically could help minority businesses compete, grow and become an even more important piece of the U.S. economy. A Microsoft-sponsored study in 2004 found as much as $200 billion potentially could be added to the economy if minority- and women- owned businesses increased their investments in technology. In the past, a lack of capital may have been the major contributor to the low technology adoption rates. Developments over the last few years, however, have made the need for up-front capital less a barrier to implementing technology.
The “On-Demand” Model
One such development is the rise of the on-demand model. Using on-demand services allows small businesses to be innovative and radical in a shorter time span and with fewer up-front costs. The term “on-demand” has become synonymous with other terms like “hosted application” and “software as a service.”
An on-demand service occurs when an application provider charges a customer a fee (monthly, quarterly, annually, etc.) to use its software. For that fee, the service provider handles all hardware and software maintenance, security issues and upgrades. All you need to access the application is a Web browser and you’re ready to go. If your Web site is being hosted by an Internet service provider who owns and maintains the hardware and software running it, you may already be using an on-demand service.
On-Demand Is in Demand
On-demand services still only amount to a drop in the bucket compared to traditional software sales of products like Microsoft Office, Intuit Quickbooks and other popular applications. But Microsoft CEO Steve Ballmer’s announcement that the firm for the first time will offer a set of hosted services, including customer relationship management (CRM), aimed at midsize organizations, ushered in a new era of software delivery. Days later, Oracle, a leader in database and enterprise software, bought its one-time rival Siebel, the company that founded the CRM industry. Siebel was slow to embrace the on-demand concept and lost market share to companies like Salesforce.com, RightNow and NetSuite—sometimes referred to as the big three of on-demand CRM. Oracle bought Siebel partly for its on-demand CRM offering. Oracle had no pure on-demand offering of its own and coveted this piece of Siebel’s business, even if it made up a fraction of Siebel’s revenues.
Lowering Barriers of Entry
In the past, having access to enterprise-class business applications meant investing hundreds of thousands of dollars not only for the software but also for the hardware to run it on, as well as for consultants to install and configure it. But with the on-demand option, companies of any size are now able to implement strategies reaching a worldwide audience, allowing them to effectively compete with Fortune 500 companies at “Fortune 1 Million” prices.
CRM has led the on-demand charge. Only the biggest companies could afford to implement enterprise-level CRM applications a few years ago. Prices have come down dramatically, and the applications are much easier to use and configure. To paraphrase Ballmer, people want hosted CRM, and in certain instances the best piece of software is that which you can subscribe to instead of install. The numbers are bearing this out, as the hosted CRM market is expected to make up 50 percent of the CRM market in 2006, up from 10 percent in 2004.
On-demand technologies allow businesses to focus on their core expertise and not on maintaining or installing software. They are going to play an ever-increasing role in how business will be done. If you think the digital divide is wide now, it will grow exponentially if minority businesses don’t begin using these applications in radical fashion to innovate and survive.
Brent Leary is a partner with CRM Essentials, a customer relationship management consulting/advisory firm. Check out his blog at www.brentleary.com.